Research and statistics – are they newsworthy or do they just reconfirm what we would have guessed anyway?
By Gillian Hepburn, Intermediary Solutions Director, Schroders
I like to believe that both apply. The Schroders 2019 Annual UK Financial Adviser Survey confirmed this, particularly when it comes to outsourcing the investment proposition.
Here’s my take on some of the results…
1. Advisers continue to outsource
Reconfirming: The survey highlighted that 50% of advisers outsource their client assets and half of those outsource more than 60%.
The number of advisers outsourcing has remained relatively stable for a number of years. However, for those who do outsource, the level of assets that they pass to third party managers continues to increase.
Something new: 27% of those advisers who outsource will increase their use of multi-asset funds in 2020. This is ‘one to watch’ in my opinion, as the challenge with multi-asset funds has usually been the level of ‘look-through’ to the underlying holdings when reporting these on a platform and in client reports. Clients can be concerned about diversification if their investments are held in a single fund and also question what the adviser is doing to merit their ongoing advice charge. Perhaps the anticipated rise in usage of multi-asset funds could be attributed to:
- Improved technology solutions to demonstrate diversification
- Financial advisers continuing to better define and articulate their overall proposition to clients
- The benefits of a fund solution rather than a model portfolio being considered in the context of the required client outcomes
2. Adviser segmentation
The PROD regulations introduced with MiFID II have encouraged advisers to either segment their client base or refine it. The adviser should then ensure that appropriate products and services are delivered for each segment.
Something new: We found that 63% of advisers were segmenting their client bank in 2019, which was an increase from 49% the previous year. It looks like the PROD regulations are now taking effect.
Reconfirming: We also asked advisers about how they are segmenting their clients. We found 70% of advisers told us they are still doing this based on client assets under management but …
Something new: The FCA refers to defining the target market at a ‘sufficiently granular level’ and 19% of advisers indicated that they were now considering life stage when segmenting. This is a positive shift, with advisers considering various stages such as starting wealth, building wealth, transition in and out of retirement and then later life. Some advisers also use sub-segments; for example, those in later life where some clients require income from investments and others want to protect their assets and transfer these to the next generation.
3. Client age and size
During 2019, many surveys indicated that advisers are focusing their efforts on high net worth clients and find it challenging to deliver advice to younger segments while remaining profitable.
Reconfirming: The Schroders survey confirmed this and 59% of advisers told us that their average client size is greater than £200k and for 26% of advisers it rises to £300k. This is coupled with an increase in the average age of clients, with 25% of advisers reporting that the average age of their clients was greater than 65.
Something new: 80% of advisers told us that transferring wealth between generations was an opportunity for their business. However, the research doesn’t reflect engagement with that next generation. We talked to many advisers in 2019 about both the opportunities and challenges this could present. In particular, we’ve looked at how the business is likely to need a different range of products, services, investment options and skills to advise the next generation and also manage family conversations. We look forward to continuing this dialogue and providing support to advisers in 2020.